INVESTMENT IN STOCK MARKET by Mr. Alankar Saxena
We invest our efforts and time at work place in order to achieve the desired goals. If we are in job, our business targets/ earning aspirations decide what kind of and how much efforts are required to be invested in order to achieve our targets. In our life span we have small and big financial goals at regular intervals for which we need certain amount of money to achieve each goal like buying a house, car, higher education, marriage of children, vacations, retirement etc. Our financial goals decide how much amount we should invest and which instruments we should invest in. Goal driven investments are long term investments and probability of expected returns is high.
A few days back my friend Rahul, who was very very young, was earning around 25000 bucks per month in a pvt company. He had a two big financial burden for which he was worried. That was the personal loan whose instalment was 5000 and a car loan of 7000. He did not have any savings and wanted to start a part time business along with his job. But due to time constraint he was unable to find work. Once he told me that one of his close relatives working in a pvt bank was making handsome money in stock market along with continuing his job. I found that he was convinced and inclined towards doing stock market business. But he did not have any clue how to start. I was also a trader and investor in stock market and use to make good money. So I decided to guide him to open a trading and demat account with a stock broker. Their are 2 kinds of stock brokers available in market ‘Discount broker’ and ‘Service Broker’. Discount brokers normally provide trading platform and only execute the orders on behalf of their clients. They do not provide any advisory service or any other product except equity and derivatives. On the other hand a full Service broker offers a wide range of services. They conduct research on behalf of their clients and provide professional stock advisory services to them. Apart from this brokers can also provide Financial planning services that include Tax planning, Estate Planning, Retirement Planning, Insurance planning, Portfolio management, wealth management services, and more. The difference between the two types of brokers lies in the variety of services offered and the brokerage (commission) amount they charge from their clients. The charges of a Full Service Broker is more that a Discount broker due the variety of services it provides. Investors who are comparatively new to market and do not have much knowledge about stock market investments are advisable to open their demat/ trading account with Full Service Brokers.
Stock market can very well fulfil one primary motive of investment that is inflation. The returns in stock market are usually higher than any other investment, but this investment is too risky and can deplete your money if invested randomly without any knowledge. A proper thought process with continuous study and research is required for this kind of investment. One should always remember that stock market is not a money making machine. Famous investor Warren Buffet says: Risk comes from not knowing what you’re doing.” So it is very important to know all rules before venturing into a new game. Many times we are impressed by our friends or relatives because they have earned money in stock market and start following them in choosing stocks. This is wrong approach. Only since someone has made money in couple of trades does not exhibit that he is expert in stock market investments. You should start landing in stock market after taking at least basic knowledge of stock market nitty gritties. First of all you should start understanding the terms like Sensex/ Nifty/ Index/ Dematerialization/ Equity /stocks/ Portfolio/ Dividend/ Bull Market/ Bear Market / Delivery/ Future/ Option/ Margin trading/ Intraday, Long buy/ short selling/ stop loss/ Expiry etc. If you have no knowledge or do not have time to acquire knowledge about stock market, you can start with a good Large cap Mutual Fund scheme where you can get your money invested in a collection of 20-25 good large cap companies, that too professionally managed by qualified fund managers.
Risk lies since stock prices change every time because of market forces. If more people want to buy a stock than sell, stock price goes up, vice versa if more people sell a stock than buy, the stock prices goes down. More important is to understand why people start liking a stock more than other and why people start disliking a stock. This may depend on a number of factors. Like if there is any positive or negative news about the company which can affect the viewpoint of the investor towards that stock. Investors may have their own reasons for buying and selling a stock. We should keep in mind that the price movement of a stock indicates the worth of a company. The most important factor that tells the value of a company is its earnings. In India listed companies declare their earnings at the end of every quarter in a year. Smart investors give weightage to this factors before investing in a company. If a company is generating loss year after year we must understand that something wrong is going on and its survival is difficult in long term. Analysts predict future value of a company on the basis of its earning projection. Companies surprising with jumping profits attracts investors’ attention. Those can provide us money in form of regular dividends, also demand of that stock increases so is the price and profit for investors. Though earning is very important factor for chosing a stock, there are several other internal and external factors that affect stock market movement. Macro economic factors like interest rates, inflation, unemployment and economic growth often move stock markets. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything. Remember, it is investors’ sentiments, attitudes and expectations that ultimately affect stock prices.
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” ― Warren Buffett